TECH BLOG
The 3G Road to the 10 Million iPhone Milestone

Had Steve Jobs walked off the stage Monday morning without giving the world some firm promises (Dates! Features! Photos!), many hearts and stock portfolios would be in shambles. But all that morbid what-ifery is moot, because Apple came through, and everyone who cares about the next iPhone knows exactly when it's going to get here: July 11.

Considering how long hold-out customers have been waiting for a 3G iPhone, another month doesn't sound like such a long time to wait. But Cupertino's stock of first-gen iPhones has been dry for weeks, meaning that Apple is, at this time, right in the middle of a very long spring-summer sales gap for its highest-profile product.

That gap threatens a bold goal that Jobs himself set when the iPhone was first unveiled. In 2007, he said he wanted to sell 10 million iPhones by 2009. It was pretty audacious for a company that had never made a phone before, but Apple kept the momentum going with price cuts and memory boosts, and by the beginning of 2008, it looked like it had a solid chance.

Then supplies slowed down to a trickle. The finish line's in sight, but Apple will have to take a pit stop before the final sprint.

Still, at a US$199 price point, that sprint is going to be incredible.

Price Power

While everyone seemed willing to bet their mortgages on a 3G iPhone announcement, predictions on whether it would receive any sort of price cut were pretty evenly split. Both sides had decent arguments.

"There are only so many freaks and fanboys in the world, and they've already shelled out their $600. If Apple wants to expand its market, it's going to have to put the iPhone at a price Joe Sixpack can afford."

"Yeah, but with all the new stuff they're going to cram in there, nobody can afford to sell them at that price."

"Yeah, but AT&T (NYSE: T) subsidizes a lot of expensive phones, and the iPhone guarantees each user will be a high-paying data client."

"Yeah, but if they cut the price now, they'll have nothing to juice up sales with during the holidays."

"Yeah, but you're just paid off by Microsoft."

"No, you are."

Contracts, Plans Intact

Now we know the truth. The iPhone will cost $199, and for that you'll have to sign up for a two-year service agreement with AT&T. The original iPhone tied buyers into a two-year contract as well. That practice is normal for big carriers in the U.S., though they'll usually give you a discount on the phone in exchange for signing the contract. At $600 for the original model, it's hard to see where there was any sort of discount at all. Only now will buyers get a substantial subsidy in exchange for carrier loyalty.

AT&T, still the iPhone's exclusive carrier stateside, says its unlimited data plans for the new phone start at $30 per month, and that's added on top of whatever voice plan you're using (the smallest starts at $39.99).

At a $70 per month minimum (plus all those ridiculous taxes and fees, of course), an iPhone voice-plus-data plan is still competitive with the other voice-and-data packages associated with rival phonemaker Research In Motion (Nasdaq: RIMM) .

So, AT&T is (likely) dropping no small amount of cash for each iPhone it subsidizes, and it's not drastically increasing its service prices, and its 3G network will probably be put under considerable strain come July 11. Is being iPhone's exclusive carrier a good deal for AT&T anymore? Was it ever?

AT&T may still eke some advantages out of its dealings with Apple. For one thing, it's no longer sharing new customer revenue with Apple, according to TechCrunch.

For another thing, a $199 iPhone -- a better iPhone than the previous model, no less -- is going to bring in a ton of new customers. And that price point isn't just exclusive to AT&T and its U.S. customers -- that's the maximum price for iPhones in all of the dozens of countries in which the device is sold.

Is China on the Way?

The reduced price isn't the only factor to consider, of course. All these new countries that Apple is opening doors to will also give it a boost toward its 10 million sales goal -- though consumers in a lot of places outside of the U.S. aren't as accustomed to signing multi-year agreements, discount or no discount.

That said, an update Jobs mentioned in the iPhone 2.0 software bundle hinted at a big market the iPhone has yet to enter. iPhone 2.0 software will speak Chinese, and one of the ways it will support the input of Chinese characters is to allow the user to draw them with his or her finger onto the touchscreen.

Apple has been courting Chinese wireless telcos like China Mobile for months, but it just can't seem to settle on a partner. There are plenty of iPhones being used in China, of course, but most are cracked, and updating them with iPhone 2.0 software would likely brick them. Is this new Chinese language support a sign of an impending deal that would bring the iPhone to the biggest country on Earth? In a CNBC interview, Jobs said he thinks it'll happen by the end of the year.

Apple doesn't seem to like setting expectations too high -- it leaves that to its fans, and they do a fine job. Instead, the company stays secretive about new products and keeps its quarterly financial estimates conservative.

At the time it was set, the 10 million iPhone goal sounded almost arrogant for a company that had never sold a single phone. After knocking the price down to $200 for an improved model and expanding into dozens of new territories -- soon, perhaps, including China -- it looks as though Apple will meet its goal handily despite a spring-summer sales drought.